D0, D1 GGM

CFA Level II
#1

I know we are going back to ultra basics here and I dont know if i over thought this but a question says the growth rate of divs is -2% and that last years dividend was 2.48.

Is D1 not then 2.48 x 0.98 = 2.43 (today D0) and then we again multiply this by 0.98 to get D1 so 2.38?

It says D1 is simply 2.48 x 0.98 = 2.43

Normally in questions like this it states something along the lines of: the current divident was. or the current dividend payout is. etc so D1 is obviously x 1+g

I am getting confused if last year almost implies a sort of ‘D-1’ so we need to multiply to get to current day and then forecast forward to get D1.

Thanks

#2

it all depends on your timeline.

Where are you on the timeline when you say Last year’s dividend was 2.48?

Are you at the beginning of time 0, or are you at Beginning of time period 1?

Draw the timeline first … is always the golden rule.

#3

CPK,

All the info that pertains to the Q is here: (It is from CFA Equity Topic Test 4)

[question removed by moderator]

The answer suggests V0 = D1/R-G

2.48 x 0.98 / 0.074 + 0.02

I did 2.48 x 0.98^2 to forecast D1 given last years was -2.48.

#4

you are evaluating the stock NOW.

Your last year was 2.48 - so this year would be 2.48 * 0.98

Not ^2 as you did…

that is why I said draw the timeline.

#5

Gosh sorry yeah that is obvious. Was starting to get tunnel vision…

A huge help as always CPK. Many thanks